Is Fortune Real Estate Investment Trust A Good Buy?

Fortune Real Estate Investment Trust (SGX: F25U) is not a particularly popular REIT in the Singapore market. Not many know that the REIT, managed by ARA Asset Management Limited (SGX: D1R), is actually one of the best performing REIT in the Singapore market in the past 3 years. Chalking total gains of 124% with distribution reinvested, the real estate investment trust has returned more than 30.8% a year for its unitholders since 2012.

However, the REIT continues to be trading below its net tangible asset. At the time of writing, Fortune REIT is only trading at 0.67 times its book value even after its amazing results over the past 3 years. Why is this the case and will Fortune REIT ever trade in par with many of the Singapore-based REIT in term of its price to book ratio?

The low price-to-book ratio of the REIT might be due to several reasons.

Where are The New Territories?

Firstly, all of its properties are in Hong Kong and might not be very familiar to investors in Singapore. Moreover, unlike properties like those owned by Hongkong Land Holdings Limited (SGX: H78), where most of the properties are located in the central district of Hongkong, many of Fortune REIT’s properties are located in the rural and suburban areas of Hong Kong. This makes it harder for investors in Singapore to relate to its relatively unknown properties.

One way to view the REIT is to see it similar to a REIT such as Frasers Centrepoint Trust (SGX: J69U), which also focuses on heartland malls such as Causeway Point and Northpoint. Fortune REIT basically has a similar profile of properties in Hong Kong.

The disappearing Chinese tourist

One important thing to note though, is that Hong Kong’s retail industry is highly vulnerable to regional and global forces. In fact, the industry has taken a beating lately as mainland Chinese tourists have begun to shop elsewhere.

Low Yields

The last reason might be the lower yielding ability of Hong Kong properties. Although Fortune REIT only trades at 0.67 times its price to book value, it is only able to produce a yield of 5.3% for its unitholder at the current price. Frasers Centrepoint Trust also offers a similar 5.4% yield but yet the trust is trading at about 1.10 times its price to book value.

This means that in term of per net asset value, Fortune REIT is providing a much lower yield compared to its Singapore-based peers. This might indicate that even though the Hong Kong-based REIT is trading far below its net asset value, the discount might actually be justified due to its low yielding assets.

Foolish Summary

So there you have it. Sometimes, even though the assets of a REIT are often revalued based on current market value, the price to book ratio might not be the best method to compare the true value of a REIT. This is especially true for REITs that have assets at different locations. You can’t really compare Fortune REIT to Frasers Centrepoint Trust.

However, what is comparable might be the yield that each of the REITs are producing for its unitholders. After all, most REITs investors are mainly interested in the high yielding nature of the trust.

With the pros and cons listed above, the onus remains with the Foolish investor to decide if Fortune REIT’s current yield is attractive, and whether it fits into his or her portfolio.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any companies mentioned above.